Quick Facts

Vietnam’s economic freedom score is 51.7, making its economy the 148th freest in the 2015 Index. Its score has increased by almost 1.0 point since last year, with improvements in the control of government spending, freedom from corruption, and monetary freedom outweighing declines in labor freedom and business freedom. Vietnam is ranked 32nd out of 42 countries in the Asia–Pacific region. Although the Vietnamese economy has achieved its highest economic freedom score ever in the 2015 Index, its overall score continues to be lower than the world and regional averages.

Vietnam’s rapidly expanding links to the global marketplace have failed to materialize into a comprehensive program of economic reform. Over the past five years, economic freedom in Vietnam has stagnated, with advances over the past year mitigating three years of deteriorating scores. A worrying expansion of inflation has undercut potential gains from advances in trade freedom.

A member of the Trans-Pacific Partnership talks, Vietnam has steadily opened its market and reduced other tariff and non-tariff barriers. However, other factors of economic freedom remain less entrenched. The ruling Communist Party controls the judiciary, corruption and bribery are common, and the government lacks transparency. The government’s suspicion of private business is reflected in inefficient business regulations. State-owned enterprises dominate many economic sectors.

Background

The Socialist Republic of Vietnam remains a Communist dictatorship characterized by political repression and an absence of civil liberties. Economic liberalization began in 1986 with its doi moi reforms, and Vietnam joined the World Trade Organization in 2007. In 2012, Prime Minister Nguyen Tan Dung acknowledged mismanagement of the Vietnamese economy and affirmed his commitment to reforming the state sector, but the Vietnamese are still waiting for action. Vietnam’s economy is driven primarily by tourism and exports. Inflation is a problem, and the country has struggled to attract investment in the absence of a transparent legal and regulatory system.

Corruption blights all levels of the Vietnamese government and judiciary. Factionalism and bureaucratic rivalries, nepotism and vast corruption within the Communist Party of Vietnam, and a general lack of accountability ensure that many agencies are run as fiefdoms, perpetuating the culture of payoffs. Private property rights are not strongly respected, and resolution of disputes can take years.

Vietnam’s top individual income tax rate is 35 percent, and its top corporate tax rate is 22 percent. Other taxes include a value-added tax and a property tax. Overall tax revenue equals 19.6 percent of the domestic economy, and government spending amounts to 27.6 percent of domestic production. Public debt is equivalent to 55 percent of gross domestic product.

Despite ongoing reform efforts, the regulatory framework lacks efficiency. No minimum capital is required to start a business, but the process still takes over a month, and licensing requirements remain time-consuming. The labor market remains rigid, and informal labor activity is considerable. Although inflation has moderated, the state continues to influence prices though controls and state-owned and state-subsidized firms.

Vietnam’s average tariff rate is 5.7 percent. Tariff-rate quotas affect imports of goods like eggs and sugar. The government screens new foreign investment and restricts investment in some sectors. Directed lending by state-owned commercial banks has been scaled back in recent years. Foreign equity in domestic banks remains capped at 30 percent, but it can be higher for weak banks.